Lam Yui Ming As a Manager of Lam Lok Yee Tso Registered Under Section 15 of the New Territories Ordinance (Cap 97) v. Lam Yui Pun As a Manager of Lam Lok Yee Tso Registered Under Section 15 of the New Territories Ordinance (Cap 97) and Others

HCMP 250/2017

[2020] HKCFI 2545

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 250 OF 2017

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BETWEEN

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DECISION ON COSTS

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1.This Court handed down its judgment on 14 August 2020 (the “Judgment”) and directed the parties to file their written submissions on costs. The parties have since filed their respective written submissions and reply written submissions.

2.The central issue is whether all the parties’ costs should be paid out of the assets of the Tso on a solicitor and own client basis as these proceedings were commenced for the benefit of the Tso, and whether this case falls within the first class of cases in Re Buckton as submitted by the 2^nd Respondent, or there should be no order as to costs for the 2^nd Respondent and in respect of the Applicant and the 3^rd Respondent, their costs should be paid by the 2^nd Respondent as these proceedings, though commenced by the Applicant were, in effect, hostile claims made by the 2^nd Respondent against the 3^rd Respondent which necessitated the Applicant to take out these proceedings and to join the 1^st Respondent. In such circumstances, the 2^nd Respondent being the unsuccessful party should be ordered to pay the costs incurred by the Applicant and the 3^rd Respondent.

Applicable Legal Principles 

3.Costs are in the discretion of the court. However, such discretion must be exercised judicially in order to achieve fairness and justice.

4.In normal High Court actions, the starting point is that costs should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made as to the whole or any part of the costs. (See Order 62, rule 3(2) of the Rules of High Court, Cap.4A).

5.The court may take into account the conduct of all the parties, including:

(1)  whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(2)  the manner in which a party has pursued or defended his case or a particular allegation or issue; and

(3)  conduct before, as well as during, the proceedings. (See Order 62, rules 5(1) and (5)(2) of the Rules of High Court, Cap.4A)

6.Unless the court otherwise orders, a trustee shall be entitled to the costs of the proceedings, insofar as they are not recovered from or paid by any other person, out of the fund held by the trustee, and the court may otherwise order only on the ground that the trustee has acted unreasonably or has in substance acted for his own benefit rather than for the benefit of the fund. (See Order 62, rule 6(2) of the Rules of High Court, Cap.4A)

7.Insofar as Order 85, rule 2 applications are concerned, the starting point is the Buckton classification. In Re Buckton [1907] 2 Ch 406, Kekewich J. at p.414-415 said:

“In a large proportion of the summonses adjourned into Court for argument the applicants are trustees of a will or settlement who ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the interests of the beneficiaries, or else ask to have some question determined which has arisen in the administration of the trusts. In cases of this character I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate. It is, of course, possible that trustees may come to the Court without due cause. A question of construction or of administration may be too clear for argument, or it may be the duty of trustees to inform a claimant that they must administer their trust on the footing that his claim is unfounded, and leave him to take whatever course he thinks fit. But, although I have thought it necessary sometimes to caution timid trustees against making applications which might with propriety be avoided, I act on the principle that trustees are entitled to the fullest possible protection which the Court can give them, and that I must give them credit for not applying to the Court except under advice which, though it may appear to me unsound, must not be readily treated as unwise. I cannot remember any case in which I have refused to deal with the costs of an application by trustees in the manner above mentioned.

There is a second class of cases differing in form, but not in substance, from the first. In these cases it is admitted on all hands, or it is apparent from the proceedings, that although the application is made, not by trustees (who are respondents), but by some of the beneficiaries, yet it is made by reason of some difficulty of construction, or administration, which would have justified an application by the trustees, and it is not made by them only because, for some reason or other, a different course has been deemed more convenient. To cases of this class I extend the operation of the same rule as is observed in cases of the first class. The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole.

There is yet a third class of cases differing in form and substance from the first, and in substance, though not in form, from the second. In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation. It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs. Whether he ought to be ordered to pay the costs of the trustees, who are, of course, respondents, or not, is sometimes open to question, but with this possible exception the unsuccessful party bears the costs of all whom he has brought before the Court.” (Emphasis added.)

8.In addition, the learned editors of Lewin on Trusts (20^th Ed.) at §48-039 stated:

“The categories of proceedings enumerated in Re Buckton are not closed. A fourth category has been recognised where proceedings are commenced by a trustee but have the characteristics of category (3). For not all proceedings commenced by a trustee for the determination of some question affecting the entitlement to the trust fund are within Buckton category (1), particularly in a case which does not involve the construction of the trust instrument but rather a dispute over the beneficial ownership of the trust fund. One example of a category (4) case is where there is a hostile dispute between two persons who claim to be the true owner of the trust fund and the trustee intervenes by seeking the determination by the court of the construction of the trust deed….Although in the form of the proceedings come within Buckton category (1), in substance the dispute comes within the third category, and the costs of the rival claimants should be governed by the principles of cases falling within the third category, for the proceedings are akin to an interpleader. We consider that the appropriate order for costs in a fourth category case is normally for the losing party to be ordered to pay the costs of the winning party and the trustee, the trustee being entitled to indemnity in respect of his costs so far as not recovered from the losing party, unless he is deprived of costs on the ground that he has acted unreasonably.” (Emphasis added.)

9.The proper approach is to categorise the litigation first. In Albany Trustee Co Ltd v Jeandin and another 16 ITELR 28, McMahon, Deputy Bailiff at §§1, 18 and 35 said:

“[1]…All counsel were agreed that, although costs are discretionary, the proper approach to adopt is to categorise the litigation first in accordance with what I will describe as “the Buckton classification” and then apply the usual costs order relating to that categorization.

…

[18] Because the application was made by Albany, no one is suggesting that Buckton (2) or Buckton (3) is engaged. In relation to the Buckton classification, all the submissions have proceeded on the basis that I have a straightforward choice between Buckton (1) and Buckton (4).

…

[35] I have classified these proceedings in the Buckton (4) category. Although initiated by the trustee, Albany, this was hostile, or adversarial litigation between the First and Second Respondents…” (Emphasis added.)

Analysis

10.On the facts of the present case, I am of the view that these proceedings should be classified in the Buckton (4) category. Although the proceedings were initiated by the Applicant, it is in effect an adversarial litigation between the安邦sub-stirpe which challenges the legality of the distribution of both sales proceeds and rental surplus or profits to members of the Tso and the 建邦 sub-stirpe, ie, the 3^rd Respondent who submitted that the sum of HK$15,000,000 should be distributed equally between the安邦sub-stirpe and the 建邦 sub-stirpe.

11.As I said in paragraph 4 of the Judgment, the main dispute in these proceedings relates to the distribution of the sales proceeds of the Tso’s lands in 2016.

12.In paragraph 41 of the Judgment, it is stated that:

“It is important to note that the stance of the 2^nd Respondent then was if the Applicant and the 1^st Respondent failed to pay the sum of HK$15,000,000 to翹萬 stirpe within 14 days, they would lodge a complaint to the Tso Registry of Yuen Long District for adjudication, as well as commence court proceedings for disqualification and replacement of the Applicant and the 1^st Respondent as managers for their alleged gross and wilful negligence and breach of fiduciary duty, and sue them for their loss and damage. It should be noted that it is not disputed that翹萬 stirpe has no bank account and is not a legal entity.”

13.Under such circumstances, the Applicant has no choice but to commence the present proceedings to seek directions from the Court to solve, in essence, a dispute between the安邦sub-stirpe and the 建邦 sub-stirpe. It does not matter that the Applicant agrees with the stance of the建邦 sub-stirpe.

14.In paragraph 32 of the Judgment, I stated that:

“The 2^nd Respondent’s case is that :-

(1)  During the Tso’s meeting on 23 July 2016, the Applicant proposed the adoption of the Formula for distribution of sale proceeds, if approved by all members. 

(2)  Members of Hung Sui (or Sou) Tso (林雄緒祖) who attended the meeting did not object to using HK$30,000,000 for per capita distribution, or the distribution of HK$15,000,000 to雲萬stirpe, but they oppose further distribution of the sale proceeds within翹萬 stirpe.  Hence, no consensus could be reached between 安邦sub-stirpe and 建邦 sub-stirpe. As a matter of Chinese customary law, so long as one member, for whatever reason, objected to the distribution, then no distribution should be made.

(3)  Hence, the sum of HK$15,000,000 should remain in the Tso and should not be distributed between 安邦sub-stirpe and 建邦 sub-stirpe.” (Emphasis added)

15.It must be remembered that the 2^nd Respondent opposed the distribution of the HK$15,000,000 on both legal and factual grounds from the very beginning. Factually, the 2^nd Respondent contended that no consensus was reached at the Tso meeting on 23 July, 2016, there was no notice of the meeting and other proposals were made during the meeting. Legally, as a matter of Chinese customary law, even if there is a custom, no distribution of sale proceeds should be made.

16.The 2^nd Respondent’s case has never been, until Mr Lam Wing Kwong’s testimony, during cross-examination, that the rental surplus or profits should be distributed according to the Formula and both建邦sub-stirpe and安邦sub-stirpe should be able to receive their per stirpe distribution of the rental surplus or profits.

17.Had the 2^nd Respondent adopted the above stance immediately after the Originating Summons was issued, these proceedings would have been unnecessary.

18.Mr Mui for the 2^nd Respondent drew to the attention of the Court §13 of Lam Wing Kwong’s 1^st Affirmation which makes it clear that the 2^nd Respondent’s stance was that the entirety of the HK$15,000,000 should be retained for the purposes of ancestral worship, including in particular, for repair or maintenance or renovation of the graves of the several ancestors.

19.This stance is diametrically opposite to the consensus reached at the 23 July, 2016 meeting to apply the Formula to the distribution of the HK$60,000,000 sale proceeds. Hence, it is not surprising that the 3^rd Respondent objected. The Applicant has to commence these proceedings to seek directions, in effect, to resolve a substantial dispute between the 2^nd Respondent and the 3^rd Respondent, in relation to how assets of the Tso should be distributed.

20.As stated above, the Applicant was threatened with legal proceedings. Mr Mui for the 2^nd Respondent submitted that “one may say that this threat ought not to have been made”. It is submitted that the making of such a threat would justify the Applicant in coming to court seeking directions. The 2^nd Respondent did not challenge that the Applicant was entitled to commence these proceedings under Order 85, rule 2. But, it is further submitted that it is quite another thing to suggest that the 2^nd Respondent had denied the 3^rd Respondent to half of the same (ie, HK$7,500,000 thereof). I disagree.

21.First, in effect, the 2^nd Respondent’s stance was that contrary to what was resolved at the 23 July, 2016 meeting, the whole sum of HK$15,000,000 should be reserved for ancestral worship of翹萬. In reality, if there were no denial of a distribution of HK$7,500,000 to the建邦sub-stirpe by the 2^nd Respondent, these proceedings would not need to be commenced.

22.Secondly, Mr Mui for the 2^nd Respondent fairly admitted and in fact it was Mr Lam Wing Kwong’s evidence that the 2^nd Respondent used these proceedings and their stances to pressurise members of the建邦sub-stirpe to agree to contribute to the ancestral worship of翹萬. This is simply wrong.  The 2^nd Respondent could persuade the 3^rd Respondent to contribute, but what it cannot do is to use wrongful reasons to deny the 3^rd Respondent’s entitlement to the HK$7,500,000 which was unanimously resolved at the 23 July, 2016 meeting.

23.This is evident from the materials which Mr Mui drew to the attention of this Court which were not included in the trial. First, in §§18-19 of the 2^nd Affirmation of Lam Wing Kwong, his stance was that provided 50% of the HK$15,000,000 was set aside for ancestral worship of 翹萬, the 2^nd Respondent would not oppose the distribution of the balance between 建邦sub-stirpe and安邦sub-stirpe. 

24.Further, in the morning of 5 August 2020, the 2^nd Respondent’s solicitors sent a without prejudice save as to costs letter to the other parties proposing that 20% of the HK$15,000,000 be set aside or reserved for ancestral worship and remaining 80% be distributed equally between建邦sub-stirpe and安邦sub-stirpe.

25.In paragraph 60 of the Judgment, I further noted that Lam Wing Kwong accepted during cross-examination that the amount that would be required for tomb maintenance and ancestral worship would be in the region of a relatively small sum of about HK$200,000, and that Lam Wing Kwong stressed that he was not against distributing the HK$7,500,000 to the建邦sub-stirpe just that they have to make contribution to tomb maintenance and ancestral worship of翹萬.

26.Moreover, it is incorrect to say that the 2^nd Respondent might have changed their views on how much would be “a reasonable sum” to be retained for the purpose of ancestral worship, but the 2^nd Respondent never intended to assert any adverse claim against the 3^rd Respondent so far as beneficial ownership or entitlement to the HK$15 million is concerned. The 2^nd Respondent did exactly that. This is made patently clear in the 2^nd Respondent’s opening submissions.

27.Further, Mr Mui for the 2^nd Respondent also fairly accepted that what the 2^nd Respondent had done wrong is that they had raised the objection in the incorrect manner. The 2^nd Respondent had laboured under the impression (which turned out to be wrong) that they could object to the application of the Formula for the per stirpes entitlement of the 翹萬 stirpe, instead of objecting to the Formula as a whole.

28.It must be remembered that this Court resolved this dispute largely based on factually what happened during the 23 July, 2016 meeting, namely, whether there was any objection to the application of the Formula as a whole. Given that the 2^nd Respondent objected on the wrong basis and persistently deployed that as a tactic to pressurize the 3^rd Respondent to agree to its proposals, it is only just and right that the 2^nd Respondent should be ordered to pay the costs generated as a result of its wrongful tactic.

29.This Court also notes that the 2^nd Respondent initially also sought to exclude the 3^rd Respondent by denying them as members of the Tso. It gave rise to Question 1. As stated in paragraph 45 of the Judgment, this Court needed not resolve Question 1 as the 2^nd Respondent no longer take the view that since the ancestor of 建邦sub-stirpe had left the village long ago, the 建邦sub-stirpe shall not be entitled to the per stirpes distribution of the Tso’s rental surplus or profits in 2015. 

30.As far as the issue of rental profits is concerned, the 2^nd Respondent also contended that there is no custom in the Tso in relation to the same. The 2^nd Respondent has adopted a root and branch objection to the 3^rd Respondent’s entitlement according to the Formula.

31.Mr Mui submitted that in the present case, both the 1^st Respondent and the 3^rd Respondent had taken a minimal role. That is not entirely correct. The 1^st Respondent acted in person and had a smaller degree of participation in the trial. But the same cannot be said of the 3^rd Respondent. The 3^rd Respondent substantively participated in the trial. It is true that the Applicant has also participated substantially because the 2^nd Respondent threatened to sue the Applicant. It is thus understandable that the Applicant tried his best to explain his position to the Court. I see nothing wrong with that.

32.Mr Mui for the 2^nd Respondent submitted that on day one of the trial, the Applicant was still seeking the Court’s guidance on whether the Formula is compatible with Chinese law and custom because it could be useful in future sales of lands by the Tso. On day 4, the Applicant sought to withdraw the issue from the Court, when it became obvious that the determination of the Court on those issues would likely to be adverse.

33.Mr Mui for the 2^nd Respondent further submitted that the issue of distribution of sale proceeds may well arise again in the future, though perhaps not in the near future. The evidence is that the HK$17 million has been earmarked for investment in four village style houses. These houses may one day become valuable. Future generations may well wish to sell these houses and the question of how they can properly do so will then arise.

34.As I said in the Judgment, the Applicant is entitled to withdraw Questions 2 and 3 (so far as sale proceeds are concerned). But I am of the view that Mr Mui for the 2^nd Respondent is right that the Court should take into account the wasted costs, in particular, costs in relation to legal submissions, incurred as a result of the Applicant’s initial stance to have Questions 2 and 3 (so far as sale proceeds are concerned) determined by the Court as a matter of Chinese customary law. 

Disposition

35.By reason of the reasons stated above, I make a costs order in the following terms:

(1)  There be no order as to costs for the 2^nd Respondent;

(2)  As between the Applicant and the 2^nd Respondent, the 2^nd Respondent is to pay 75% of the costs (including all reserved costs) incurred by the Applicant in these proceedings, to be taxed if not agreed, on a party to party basis.

(3)  In the event that the Applicant’s costs of (including all reserved costs) and incidental to these proceedings are not covered by paragraph (2) above, the balance is to be paid out from the assets of the Tso on a solicitor and own client basis.

(4)  As between the 3^rd Respondent and the 2^nd Respondent, the 2^nd Respondent is to pay 75% of the costs (including all reserved costs) incurred by the 3^rd Respondent in these proceedings, to be taxed if not agreed, on a party to party basis.

(5)  In the event that the 3^rd Respondent’s costs of (including all reserved costs) and incidental to these proceedings are not covered by paragraph (4) above, the balance is to be paid out from the assets of the Tso on a solicitor and own client basis.

(6)  There be no order as to costs for the 1^st Respondent.

36.Finally, it remains for me to thank Mr Tam for the Applicant, Mr Lam Yui Bun, Mr. Nelson Miu for the 2^nd Respondents and Mr. Gary C.C. Leung for the 3^rd Respondent for their helpful assistance rendered to this Court.

Written submissions by Mr Aidan Tam, instructed by Messrs. Lee Chan Cheng, for the Applicant

Written submissions by the 1^st Respondent acting in person

Written submissions by Mr Nelson Miu, instructed by Messrs. Ken Chiu & Co., for the 2^nd Respondents

Written submissions by Mr Gary C.C. Leung, instructed by Messrs. Chow, Griffiths & Chan, for the 3^rd Respondent